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Foreign Exchange

FX research roundup: CAD retracement possibilities

It hasn’t been a dull week: the USD 2% or so stronger against the EUR, JPY and GBP; EUR/CHF now comfortably below 1.43. But it has been a week where the trend was, at the very least, amicable. The only real counter-trend recommendations we’ve noticed were for CAD.

JPMorgan is still with the trend: “...own currencies where economic growth is accelerating and the interest rate market is repricing from very low levels (CAD, CHF)”. BNP Paribas, in Thursday’s daily research, is both on the fence and conflicted, advocating one to “stay prudent” in USD/CAD and admitting to a short at 1.0217 (stop 1.0325) from the technical trading model and recommending a long at 1.0140 (target 1.0320) from a short-term strategy angle.

RBC, however, flags the possibility of a “retracement phase” after last Friday’s key day reversal and Wednesday’s high of 1.0282; the retracement phase requires a daily close above 1.0238.

No such shilly-shallying from Howard Friend at MIG Investments though: from Monday Friend has been long USD/CAD at 1.0185 with a stop at 1.0055, slightly below Friday’s low.

But the real contrarian hero of the week is the wonderfully named Lee Hardman at Bank of Tokyo-Mitsubishi. Hardman speculates that it could be “time to consider a contrarian long EUR/CAD position”, which appears, at first glance, to be a trade of the catch-a-falling-knife category. The trade is largely argued from the point of view of stretched valuation and record speculative IMM positioning (AKA the crowded trade) plus a heartening belief that, regarding Greece “an effective solution will have to be put in place shortly bringing an end to the current elevated level of uncertainty which is weighing on the euro.” It is not clear where Hardman would stop out but the research note was written when EUR/CAD was 1.3750 and the target a healthy “back towards 1.4500 in the coming months”. Well ’ard, I say.

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